LDI Pocket guide - Investing to meet benefit payments
- 15 September 2016 (3 min read)
Investing to meet benefit payments
Until recently, Liability Driven Investing (LDI) has focused mainly on protecting the solvency of a pension scheme by ensuring the value of assets better matches the value of liabilities. Schemes and their advisors are increasingly looking at the other side of the equation - how it can play a central role in ensuring a scheme is better equipped to meet cash-flow requirements as they fall due.
For an increasing number of pension schemes, delivering on this promise to pay member benefits on time is becoming a greater concern than in the past. Historically, the cash required to pay pension benefits has, more often than not, been met from employer and employee contributions. However, as schemes mature and contribution income is reduced, schemes are increasingly having to rely on assets to generate the cash required to pay member benefits.
Key points
- LDI has predominantly focused on protecting the solvency of a pension scheme by ensuring the value of assets better matches the value of liabilities.
- A well designed LDI solution can play a central role in ensuring a scheme is better equipped to meet cash-flow requirements as they fall due.
- The approaches adopted by schemes that have already designed the asset allocation strategy around their future cash-flow commitments will become more common.
Not for Retail distribution:
This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.
This document is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
It has been established on the basis of data, projections, forecasts, anticipations and hypothesis which are subjective. Its analysis and conclusions are the expression of an opinion, based on available data at a specific date.
All information in this document is established on data made public by official providers of economic and market statistics. AXA Investment Managers disclaims any and all liability relating to a decision based on or for reliance on this document. All exhibits included in this document, unless stated otherwise, are as of the publication date of this document. Furthermore, due to the subjective nature of these opinions and analysis, these data, projections, forecasts, anticipations, hypothesis, etc. are not necessary used or followed by AXA IM’s portfolio management teams or its affiliates, who may act based on their own opinions. Any reproduction of this information, in whole or in part is, unless otherwise authorised by AXA IM, prohibited.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales, No: 01431068. Registered Office: 22 Bishopsgate, London, EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.
Risk Warning
The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested.